Four months after the collapse of an ETF startup's sale, the firm and its founder are under legal fire over a marketing agreement with a banking giant.

On August 13, Keystone Associates and Cable Mountain Partners sued Elkhorn Capital Group [profile] and Elkhorn founder Ben Fulton, Bloomberg reports. Cable Mountain and Keystone accuse Fulton (now a bigwig at another ETF shop, ProShares) of misrepresenting a $500,000 marketing payment from Barclays as guaranteed, when the payment was actually contingent on sales. (That deal involved Elkhorn selling ETPs for Barclays.)

An unnamed source IDs both Cable Mountain and Keystone as being run by Larry Lunt, father of Lunt Capital Management founder John Lunt. LCM, in turn, powers the index behind one of Elkhorn's former ETFs, the Lunt Low Vol/High Beta Tactical ETF.

Fulton, Larry Lunt, a Barclays spokeswoman, and counsel for Keystone and Cable Mountain all declined to comment to Bloomberg, while the publication couldn't immediately reach John Lunt for comment.

Cable Mountain and Keystone are accusing Elkhorn and Fulton of common law fraud, negligent misrepresentation, and securities fraud. They claim to have suffered at least $2.5 million in damages. The case was filed in the U.S. District Court in Delaware.

Last year Veracen Investment Holdings (parent of Turner Investments) agreed to acquire Elkhorn, yet the deal fell through last spring. Another ETF shop, Innovator Capital Management, took over two of Elkhorn's ETFs, including the one powered by LCM, while the other two Elkhorn ETFs shut down. 

Edited by: Neil Anderson, Managing Editor


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